The returns on Indonesia's US dollar-denominated corporate bonds are in fact the highest in Asia in 2017. This is caused by the relatively stable rupiah exchange rate. Only since the past month we detect some significant rupiah depreciation, triggered by US dollar strength. However, most emerging market currencies experienced weakness amid rising expectations of another Fed Funds Rate hike.

Besides the relatively stable rupiah rate, Indonesia also experienced easing inflationary pressures, an improving fiscal situation as well as prospects of accelerating economic growth. Rising commodity prices are also an important factor, with particularly a strong coal price.

Pheona Tsang, Head of Fixed Income at BEA Union Investment Management Ltd, said she continues to judge Indonesia's US dollar-denominated corporate bonds to be 'overweight'.

Returns on USD Corporate Bonds in Asia in 2017:

Country Return
Indonesia 12.74%
India  5.95%
Taiwan  5.95%
Malaysia  5.49%
China  4.96%
Thailand  4.85%
Singapore  4.28%
Hong Kong  3.73%
Philippines  3.34%
South Korea  2.89%

Source: Bloomberg

Meanwhile, the Indonesian government is eager to tap new sources of funding, for example overseas rupiah-denominated bonds (known as nasi goreng bonds), particularly for its infrastructure development program.

For example, Indonesian state-owned toll-road operator Jasa Marga is planning to issue nasi goreng bonds before the end of 2017 and has already met several investors in a non-deal roadshow to gauge interest.

While US dollar-denominated global bonds are nothing new to Indonesian companies, these bonds always carry a currency risk for the issuer (especially in uncertain times when the rupiah is vulnerable to sudden weaknesses). A US dollar-denominated bond, on the other hand, shifts the currency risk to the foreign investor.